UK and France must show commitment to Islamic Finance
24 February 2010
London and Paris, the financial centers vying for the lead on Islamic finance business in Europe, need to issue sukuk bonds soon to show commitment and keep competition at bay, experts told Reuters.
The market for Islamic bonds in Europe failed to push out deals after the collapse of Lehman Brothers, when credit was hard to come by and companies were yearning for alternatives to traditional financing methods.
"Twelve months ago all sorts of UK and European corporates were talking to us about tapping the Islamic markets because either their conventional sources had dried up," Farmida Bi, partner at law firm Norton Rose, told the Reuters Islamic Banking and Finance Summit this week.
A series of factors, including legal and political complexities, helped to derail potential deals, leaving both cities struggling for credibility, and giving new market entrants such as Turkey a chance to step in.
"Some of those concerns were now alleviated and these corporates are not so much in the markets now," she said.
Appetite on the continent has also been dampened in the wake of wranglings over debt in Dubai and neither France nor the UK have issued a sukuk.
Last April, France seemed to have all but won the sukuk race, after Gilles Saint Marc, a member of the Islamic Finance committee at Paris Europlace - which promotes the French capital's financial district - said a corporate was close to issuing a 1 billion euro sukuk.
Well into 2010, however, Paris is still addressing fundamental issues such as tax and legal changes to avoid double taxation of Islamic products, Saint Marc said at the Reuters summit on Wednesday.
Tory Sukuk
Britain remains the most sophisticated Islamic market in Europe, despite holding off from a sovereign issuance, which had been expected to be in the region of 2 billion pounds through short term notes.
And Humphrey Percy, the CEO of the Bank of London and the Middle East - one of the country's five stand-alone sharia banks - reckons the UK and will eventually consider sukuk again as it looks at way to re-pay its ballooned debt.
That stands even if this year's elections are won by the opposition Conservative party, he said.
"We have had initial discussions with the potential new government and they have expressed interest in this project - quite great interest - because things have changed since the initial discussions in 2005 and 2006," he said.
Similarly, Saint Marc believes that issuing a sukuk this year - whether the planned 1 billion euro bond or any other - will be crucial for France.
Young Turks
There is also fresh competition in the frame.
Turkey, whose secular set-up has so far been an obstacle to Islamic finance development, is giving signs of relenting and potentially opening the doors to a market with 80 million Muslims, said Imam Qazi, head of Islamic finance at law firm Burges Salmon.
A Turkish sukuk may not immediately threaten London's position, but ramp up the competition, he said.
"They will eventually (issue a sukuk). My feeling is that the pure Islamic ideas are gaining in momentum. There will gradually be more and more Islamic banks," he told the Reuters summit this week.